Question

How does social regulation differ from economic​ regulation?

Answer 1

Regulation can be defined as the rules which identifies the permissible and impermissible actions by the firms, individuals and government and are backed by fines or revocation. It consists of rules that the government imposes on firms and individuals to successfully attain various purposes like cheaper and better goods, protection of firms from unfair competition, better environment, safe workplace and products.

Regulations can be classified into economic regulation and social regulation.

“Economic regulation” refer to the rules associated with entry controls (that restrict who can enter a market) and price controls (the maximum prices that they may charge). It also refers to the regulation of financial firms.

For example, entry controls refers to the regulation that professionals like lawyers, doctors, chemists, accountants must have license to work. Airlines, telephone services and railroads are told by the government what prices they cannot exceed and are examples of price controls.

“Social regulation” refers to the rules directing how firms or individuals must perform its activities in order to correct market failures caused by externalities. Social regulations are imposed to restrict activities that threaten the environment, public health, safety and welfare.

Market failure are caused by externalities when firms (or individuals) do not take responsibility of the costs that their activities might have on third parties. For example, when a manufacturing plant in a firm emits harmful chemicals into the air and water, causing damage to the environment, then the government sets limits of emission or even requires the firm to use technologies that can minimise the emission of harmful chemicals when the steam is released into air.

A list of federal government agencies that are involved in social or economic regulations are listed below, along with their roles.

Examples of federal government agencies that are involved in social regulations:

1. Environmental Protection Agency (EPA) – The purpose of EPA is to ensure protection of the environment and human health by conserving energy and ecosystems and controlling pollution.
2. The Occupational Safety and Health Administration (OSHA) aim is to ensure safe and healthy conditions at workplace that requires the employers to inform workers about the known risks and to provide them with proper equipment and training to work safely and thus reduces the risks at workplace.
3. The Food and Drug Administration (FDA) helps in protection of public health by approving new drugs, regulating advertisement for food and drugs and provides standards for labelling on food packages.
4. The National Highway and Traffic Safety Administration (NHTSA) describes its mission as “Save lives, prevent injuries, reduce vehicle-related crashes”. It keeps people safe by reducing accidents, deaths and road injuries on highways by monitoring risks and setting standards for both vehicles and highways.
5. The Federal Aviation Administration (FAA) regulates civil aviation and promotes safety by encouraging development of new aviation technologies, operating air traffic control and setting standards for airline safety.
6. The Consumer Product Safety Administration tries to reduce accidents from consumer products by examining these products for risk.

Examples of federal government agencies that are involved in economic regulations:

1. Federal Communications Commission (FCC) - The FCC regulates radio, telecom and television industries.
2. Federal Energy Regulatory Commission (FERC) – The FERC regulates interstate transmission and sales of electricity, oil and natural gas and approves proposals to build liquefied natural gas (LNG) stations, interstate pipelines of natural gas or inspects hydroelectric projects.
3. Financial - Financial regulation in the United States is responsible for compliance and safety-and-soundness regulation.
4. Controller of the Currency (OCC) - The OCC oversees and supervises national banks in the United States.
5. Federal Reserve System (Fed) - The Federal Reserve System or central bank of the United States works to ensure more flexible, safe and stable financial and monetary system. It also supervises banks and maintains the stability of the financial system.
6. Securities and Exchange Commission (SEC) - U.S. SEC ensures fair functioning of the securities market, protects investors and facilitates capital information.